Podcast Episode - Ask KT & Suze Anything: What Is True Financial Independence?

On this edition of Ask KT and Suze Anything, Suze answers questions about what to do with the money from unused 529 plans, paying off mortgages, and getting out of credit card debt. Plus, a quizzy related to the Stock Split Suze School (episode 584) and so much more!

Listen to Podcast Episode:

---

Podcast Transcript:

KT: Happy July 4th, Suze.

Suze: KT...

KT: Everybody’s sleeping.

Suze: Nobody’s sleeping. When they hear this, they’re already awake when they hear the Women and Money podcast and everybody smart enough to listen. What is this today? It’s the Ask what, KT?

KT: Ask KT and Suze Anything.

Suze: No, it’s the firecracker. So here are your two firecrackers coming to you to answer your questions — but truthfully, coming to you in the hope that financial independence blesses every one of your doorsteps. Don’t you hope that for everybody?

KT: I do, and this is a perfect day to get that started.

Suze: You know, it’s interesting. Obviously, most people know I wrote a book called “The Nine Steps To Financial Freedom.” And as time went on, I started to change the word from freedom to independence because true financial independence means you are not dependent on anybody or anything to make decisions for you. Financial freedom simply means you have possibly a lot of money, you’re free to do what you want. But a lot of times it also means you have an advisor that’s advising you about this money because you don’t know about it. And then you end up like that person did a few Sundays ago with $7 million put into annuities. That’s not the goal. The goal is financial independence. How are you this morning, my little firecracker?

KT: I’m happy.

Suze: Tell me why.

KT: Today we have a fishing tournament — a family fishing tournament on the island.

Suze: Tell them who’s here with us.

KT: We have, of course, my twin sister Lynn and her husband Tom, her daughter Katie, her husband Taylor, and the two boys, Will and Tommy.

Suze: Yeah. How old are they now?

KT: Tommy’s six, Will is four.

Suze: And who else is in Katie’s belly?

KT: Nicky — Nicky, Nicholas — and Colo, our Colo.

Suze: We almost forgot our baby.

KT: We never forget him. Our July 4th day is all about fishing. So we’re going to have a lot of fun and follow it up with a barbecue. And the next day we’re having a kid barbecue on our beach for all the kids — all little pirates. We have all boys here. We have one...

Suze: Also the Davis’ kids and other kids — that’s the manager of the island. And we’re all gonna have a thing where...

KT: But wait, tell them who the barbecue chef master is.

Suze: Colo.

KT: The grill master, I should call him.

Suze: Colo is going to make hamburgers and hot dogs...

KT: He’s a nervous wreck.

Suze: ...for everybody. But tomorrow Lynn, KT’s sister, has gathered all these coconuts, painted them white, and the kids are going to paint coconut fish.

KT: It’s called coconut fish. It’s so much fun. We’ll post a photo of that for all of you.

Suze: All right, we will.

KT: On July 5th — on July 6th because we’re doing it on the fifth. We’ll post it on the weekend, maybe for Suze’s Sunday School.

Suze: You never know what I’m gonna do.

KT: Let’s get on with this. It’s July 4th, everyone wants to go fishing and barbecues.

Suze: And so let’s light a fire on any of this. Go do it.

KT: So the first one I picked, Suze, is called “Fear.”

Suze: Well, that’s great. That’s celebratory.

KT: It says, “Hi Suze. I’m afraid of making a decision and because of you, I know I have to put my fear aside and think logically. I know you would say, ‘Stand in my truth.’”

Suze: I would definitely not say stand in your fear, that I can tell you.

KT: And Suze, her question — this is from Judith. She said, “But how do I do that when the future is uncertain? How do I stand in my truth when the future is uncertain?” So I’m gonna tell you all why Judith is afraid, and she has good reason to be. Her husband is only 61 and he’s going in for a very, very big back surgery, and he will most likely go out on short-term disability and possibly long-term. So the question is, how do we stand in our truth and look at our situation clearly and make decisions? That’s the question — it’s called fear.

Suze: So my dear Judith, there’s one line in there that really stood out and it is this: “He is most likely...” It’s not “he is definitely going to come out and gonna need all of this help and everything.” “He most likely is going to have to do certain things when he comes out.” Most likely doesn’t mean definitely. And KT and I are the biggest believers in that because four years ago, truthfully, 19 days from now, four years ago, we were told that I would be coming out not being able to possibly walk, not being able to use my arms. KT was told right before I went in — most likely, I will come out what, KT?

KT: Oh my God, blind. So this was a major surgery...

Suze: But it doesn’t matter. We don’t know what Judith’s surgery on the back is going to be, but that’s what I was told. And the next morning when the doctors came in and I was there, they just couldn’t believe it. So you face your fear by having courage, by really waiting to see what the outcome actually is — waiting to see the reality of the situation versus living in the possibility of the situation. And then you go from there. He may come out a whole lot better than you have any idea, and he may come out even worse than you expect. But you deal with the truth of the situation at that time. And so you will know when that day happens what you need to do. Right now, you’re dwelling in fear because you don’t know the real outcome. When the outcome becomes a reality, trust me, you will know what to do. Right, KT?

KT: Absolutely. So good luck to him and you and we’re going to send prayers.

Suze: Courage and prayer — that’s what I would say.

KT: All right, next is from Janet. She said, “Hi KT and Suze, thank you for all you do to help so many not only survive but thrive.” I love when you all write things and you kind of quote Suze’s little teachings. I love that. So Janet’s daughter graduated from college as a chemical engineer — smart girl — with the help of prepaid college funds. She chose not to go to graduate school. And now Janet has excess money, Suze, invested in a Florida prepaid 529 plan. Her question is, am I able to withdraw that money without penalty and invest it elsewhere?

Suze: Should that have been your quizzy? No, I have a quiz for you today.

KT: Today’s my test. I’m so nervous — the split test, I call it.

Suze: Now, did all of you figure out the answer to that question?

KT: Wait, tell them this was from Suze’s Sunday School that she did about stock splits.

Suze: Did you listen to it?

KT: Suze, I had to listen to it in order to get ready for this test.

Suze: How many times did you listen to it?

KT: Three.

Suze: Do you think you got it right?

KT: I think so, except for one of them. I don’t have a clue.

Suze: All right, fine. We’ll see what happens. So, Janet, yes, it’s true. Believe it or not, funds from a 529 plan can now be converted to a Roth IRA, but it is subject to certain conditions and limitations, my friend. As of January 1st 2024, this new law came into effect, and account owners or beneficiaries now can roll over up to $35,000 of unused 529 funds to a Roth IRA without incurring penalties or taxes. Doesn’t that sound great? But here are the conditions. You can do that only if the 529 plan has existed for at least 15 years, and the funds being transferred have been in the account for at least five years. Also, it has to be done in the beneficiary’s name — like your daughter. So it needs to be in your daughter’s name.

But here’s what you need to know: your daughter will have a Roth IRA. She cannot contribute more; you cannot transfer more than whatever the max is that year for the Roth from the 529 to the Roth IRA. So if, in fact, you’re going to do that this year, the maximum that can be rolled over to a Roth is $7000. But remember, your daughter then cannot contribute an additional $7000 on her own. That rollover counts as your daughter’s contribution for that year. All right, KT.

KT: OK. Next question.

Suze: You did not like that question, did you? You didn’t like my answer.

KT: I wanted to just know what do you do with the excess money?

Suze: But there are rules and regulations.

KT: You gave her choices. So that’s what’s important.

Suze: I didn’t give her a choice. I told her how it works. You know, everybody, I sit here and I’m looking at KT as I’m saying all this because—

KT: I like when Suze has brevity and concise answers.

Suze: But sometimes it’s more complex, and this topic is far more complex than everybody thinks. They just think they can roll over $35,000 at once to a Roth, and you cannot. All right, go on.

KT: Here’s one that’s right to the point. Ready? It’s called “Does It Make Sense?” Thanks to your fabulous podcast, I got physically and financially fit during the pandemic. I love this. A lot of people really did get in great shape...

Suze: And some people got — what did they call it, the what? The COVID 15.

KT: So JT actually ran every day, five days a week, lost 15 pounds while listening to the podcast and “The Ultimate Retirement Guide.” Very grateful. So we’ll make it quick. JT is turning 65 in January and wants to semi-retire at the end of the year. Having watched and listened to you for years, Suze, I want to be mortgage free in 2026. My partner and I own a home together and because he has out-of-pocket monthly expenses to care for his 94-year-old mom, he is hesitant to spend the money. Understood, JT gets it. However, in speaking with my financial advisor, he said I can absolutely afford the $55,000 payoff — the mortgage payoff — and I think it was over seven years left. Does it make sense for me to pay it off and have my partner just pay me the monthly amount for what he would normally contribute each month and then...

Suze: I get it, KT, I so get it.

KT: JT also is pretty solvent. There’s a list of what JT has in investments. So what do you think?

Suze: I think you should not do it, JT. Oh, you should see KT’s face, my God.

KT: Why not?

Suze: I’ll tell you why.

KT: JT wants to be mortgage free in 2026. I don’t know if JT is a man or a woman.

Suze: I don’t care, to tell you the truth. Here’s the reason — there’s a few reasons, JT. Number one, your mortgage is at 3.6% interest, OK? You could make more money by putting it into a treasury or a CD or something like that, or even investing it in dividend-paying stocks or growth stocks. You all know that I’m still loving NVIDIA. I still love Apple. I still love CrowdStrike. I still love many of those companies that I think are going to grow and grow and grow. Amazon — I think they’re all going to continue to grow. So you could do that and make far more on the money. Given that you say you’re already solvent in everything, you could pay off the mortgage anytime you want. But there’s another reason.

I want your partner to feel equal. I want you to honor your partner for using that money to take care of his 94-year-old mom. And I want you to stay in partnership with that. So because of that, to just keep things equal on that level, I don’t want your partner to have to pay you. I want it just to stay how it is. Invest the money and make more than that three-some-odd percent that you’re paying on your mortgage. That’s why, KT.

KT: All right. My next question.

Suze: What made you laugh?

KT: Well, because you’re looking at me like — I looked at her like, why not pay it off? Because she always says no one feels as good as you do when you own your home outright. But in this case, it’s more the feeling of the partners.

Suze: But here’s something I want to say. There is not one financial rule or thing that you hear me say, everybody, that applies all the time across the board to every single person — except having a Roth retirement account, period. You should be contributing to a Roth. Whether you should convert a Roth or not is a whole other question, but contributions — it is the only thing that applies across the board to everybody. Everything else, KT, it depends on their individual situation.

KT: OK. My next firecracker is from Peachy. I love this name. That’s why I picked it actually — just because of Peachy. Peachy said, “Suze, I have $28,000 in credit card debt since Hurricane Ian. I am retired on Social Security and a small pension from a divorce. I have over $300,000 in a regular IRA — I’ll need to pay taxes. Should I withdraw the money and pay off the debt to get even? And how will it impact my Social Security income? I did this once before to pay off my car and it threw my Social Security money into additional taxes. How am I allowed to take a withdrawal without that happening again?”

Suze: You are not.

KT: Wait — and then Peachy said, “I have a whole life policy with a cash buildup — was thinking of dumping the policy for the cash value, which is around $25,000.” So what should Peachy do? Peachy, Peachy, Peachy.

Suze: You already know the answer to this question because you took out money from your IRA and did what — you had to pay more taxes on your Social Security. So therefore, you betcha, if you take out $30,000 from this, I am telling you you’re going to end up most likely paying taxes on your Social Security. Therefore, what should you do? Don’t do that, Peachy — whatever you do, don’t do that. But I’ll tell you what you should do. You know that whole life policy that has $21,000 of cash value but only a $25,000 death benefit? Guess what you’re gonna do, girlfriend? Dump it. You are going to set a firecracker and blow that thing up and you are going to enjoy watching all the lights in the air because guess what? You’re gonna take that money and you’re gonna put that towards the $28,000 that you have in credit card debt, and then you are going to pay off the rest of that debt little by little until you are out of debt. Got that, girlfriend?

KT: Celebrate. You can do it. It’s called independence.

Suze: But KT, I just have to say this — see, if she had a Roth IRA, she could have taken it out of there, whatever. All right, go on.

KT: All right. Now I have two kind of matching questions here, and then I can’t wait for that quizzy. Ready? This is from—

Suze: Wait, I just have to say this — if she can’t wait for a quizzy...

KT: No, because I studied it, it was—

Suze: That means she’s pretty sure she has the right answer.

KT: There was one that was confusing, but I think I know it. So this is from Karen. Here’s her question. “Hi, Suze. My partner and I are in our upper thirties and have been dating for two and a half years. We have no kids, we’re unmarried. We want to buy a house and live together in Florida. Can you please explain options for holding the title in the house? Note — we both have revocable trusts.” Good for them. There you go. That’s from Karen. How do they do it?

Suze: So Karen, it really depends: are you going to be equal partners in this home?

KT: Let’s assume they are. I think that’s what she’s asking.

Suze: Assuming that you’re going to put down a down payment of whatever you’re going to put down and split that down payment 50/50, you’re gonna split the property taxes, the insurance, the maintenance, and the mortgage payments 50/50. Assuming that is true, then the way that you would do it is you would own it as tenants in common, and you could do that with a living revocable trust. The title would be in the trust name for you and the trust name for your partner, and it would be tenants in common — which means if one of you were to die, the other half will go to the beneficiaries of the person who is deceased, not automatically to you. And if they get married later and divorce, it gets split that way as well.

However, remember when you’re doing this, let’s just say your partner dies, leaves it to somebody who possibly doesn’t like you — who knows what can happen, KT, I’ve seen it all. They can force a sale; they could do anything. So the other thing you want to make sure of is that the person has a life estate in the house, which allows them to live there for as long as they want. The other thing is you both should have term life insurance policies on you so that if something happens to one of you, there is enough money to pay the mortgage off and continue to let the other person live there for as long as they want while the house appreciates in value. Upon death, it goes to the beneficiaries that are designated. I just want to say this — it is far more complicated than you have any idea. I just want you to sit down and take a really good look at if you can truly afford this. Do you each have a 12-month emergency fund?

Because let’s just say you do this and now you or your partner get in a serious car accident — you’re not killed, but you can no longer work. You are now disabled, whatever it may be. For a while — doesn’t have to be permanent — you just can’t work for a while. Do you have all the money to continue to carry all the expenses of that house without an income from your partner, and vice versa? There are so many questions you need to think about. So just think closely about it. Why are you making a sound?

KT: Robert, don’t put this in. It’s “vice versa,” not “visa versa,” vice versa, not visa versa.

Suze: You can leave this in, Robert.

KT: No, she sounds like she’s singing an Italian song. “Visa versa!” It’s vice versa.

KT: Robert, right? Weigh in.

Robert: Well, only because you asked, I will weigh in. The term can be pronounced both ways — “visa versa” and “vice versa.” Commonly it is “visa versa.” It does sound like an Italian song. The spelling however is “vice” — V-I-C-E V-E-R-S-A — because it’s Latin.

Suze: Ah!

KT: All right. Next question. My last question is from “Wonky Pension Actuary.” Love the title. “Hi, Suze. Can you please give us some ideas on how couples should split their finances? I make more money than my partner and I’m wondering what is fair for us to split our living expenses — rent, groceries, etc.” This is from a Wonky Pension Actuary.

Suze: I’ve been using this formula now for at least 30 years, so this one’s very easy for me. Many people think that they should split everything 50/50, but it’s very difficult if one of you is making $7000 a month take-home, like you maybe are in this situation, and your partner’s only taking home $3000 a month. So if you split it 50/50 and your expenses were $3000 a month, they’d be putting in half of what they take in and you’d be putting in maybe 25% of what you take in. So it’s never equal amounts of money — it’s always equal percentages. Therefore, this is what you are going to do. Let’s assume you take home $7000 a month, your partner takes home $3000 a month. Add those together — that’s $10,000 a month. Let’s assume your joint expenses are $3000 a month. Divide 3000 by 10,000 — that’s 30%. So 30% of your 7000 is $2100 a month; 30% of your partner’s $3000 is $900 a month — $3000 a month for expenses. There you go. Equal percentages, not equal amounts of money, because KT, 2100 plus 900 is what? $3000 a month. All right, KT!

KT: Ready everybody? Are you ready, Suze? Are you in position?

Suze: I cannot wait to hear what you’re gonna say. For everybody who didn’t listen to the Suze School on how splits work — NVIDIA stock — because the question came up, NVIDIA was splitting 10-for-1. What did that mean? I did a whole podcast on it. But the truth is, NVIDIA has split almost six times over its existence, and it’s easy to figure out what a 2-for-1 stock split is, what a 3-for-1 stock split is. Explain to everybody what those are, KT. What is a 10-for-1? Don’t tell me, you listened — what was a 10-to-1 stock split, KT?

KT: Is that — um — if you have one share and it splits 10-to-1, you now have 10 shares.

Suze: And what happens to the price of the stock?

KT: It gets divided by 10.

Suze: That’s my girl. So those are easy to figure out. Remember, whenever you hear a stock split and it’s like 10-to-1, the second number is always the number of shares you have. The first number is how many shares you are going to get for every share you have. If it’s a 3-to-1 stock split, you will get three shares for every share that you have, and the price of the stock will be reduced three times. However, when it came to NVIDIA back in September 11th — believe it or not — 2007, they did what was known as a 3-for-2 stock split. Now that is far more difficult to figure out — how many shares will you have? What is the logic on that? So I gave that as a quiz for all of you to figure out. So let’s see if Miss Travis now figured it out. What does a 3-for-2 stock split mean, first of all, KT?

KT: OK. So can I do it like in numbers? Like if I have — a 3-for-2 means that for two shares, I now have three.

Suze: That’s great. Yes. So let’s just assume you had 100 shares and it’s a 3-for-2 stock split. You just said that you get three shares for every two shares you have. So if you have 100 shares and it’s a 3-for-2 stock split, how many shares would you have?

KT: 125. 150. 150! I got that — 150.

Suze: Are you sure? Which one — 150 or 125?

KT: 150?

Suze: So why’d you say 125?

KT: Because I was thinking of another model that I was figuring out. (Suze laughs) Don’t do that — as soon as she puts numbers, I get so confused. Don’t do that.

Suze: I have to do that.

KT: Don’t do it. Just ask me the questions about splits. Don’t put the numbers in.

Suze: You have to know the number.

KT: Just tell me, just ask me the question. So — 150. It’s two and now I have three. So I got one. I got an extra, so I have 150.

Suze: You sure?

KT: Yeah.

Suze: Right. You got that right.

KT: OK. Good. If it’s a 2-for-1, that’s real easy. I have 100 shares, now I have 200 shares. That’s easy. OK, what else do you want to know, Suze?

Suze: (Laughs) Are you ready?

KT: I’m ready.

Suze: All right, KT. If on September 11th of 2007 — the date does not matter, so don’t put that in your little head — the stock NVIDIA was trading at $50.91 and there was a 3-for-2 stock split, what would the price of NVIDIA be?

KT: 30-something.

Suze: How did you get that?

KT: Um, divided it.

Suze: By what? What did you divide—

KT: A third.

Suze: You divided what by a third?

KT: So, wait — so tell me again, the share — it was $50.91. Just make it an even 50. OK. So $50.91 and then now I have 3-for-2.

Suze: So if you divide $50.91 by three, is that what you would do? That’s only $16.97.

KT: Now, now add them together.

Suze: What does that mean, add them together?

KT: 16 times 2 — 16 and 95 cents times two is what? 30-something? That’s a price. Right?

KT: Right, right. Is it — am I right?

Suze: (Laughing) Yes.

KT: See, I knew it! I got that right. 30-something. $33.94. But I got that right.

Suze: I can’t believe it. Yeah. I, honest to God, can’t believe it.

KT: I got it right!

Suze: How long did that take you to do?

KT: I listened three times to that part in the podcast. If I can do it, you can do it. And here’s the great news: everybody, pray for splits — it’s always — not always, but most of the time—

Suze: Well, there are sometimes reverse splits, KT.

KT: I don’t even — that’s another school.

Suze: So, did you all get that right? Did you get it? That if you had 100 shares before the split, you would have 150; the new price of NVIDIA at that time would be $33.94.

KT: OK. Ready everybody? KT got it right. So here we go. Fireworks! Independence Day, July 4th. Ready? Here they come. (Sound effect of fireworks in the background.)

Suze: And you know what else we want for you? We want you all to have the best July 4th in the world. We actually want you to have every day be the best. And so therefore, if you can just remember how to do a stock split like KT just did and to put people first, then money, then things, and to stay safe, you will be unstoppable! Again, Happy July 4th, everybody.